Ars sits down with Yoichi Wada, President and CEO of Square-Enix, to discuss …

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The Japanese games industry is in trouble. At least, that seems to be the consensus of a number of high-profile developers from that region, especially after this year's Tokyo Game Show. But Square-Enix—the developer best known for role-playing series like Final Fantasy and Dragon Quest—isn't taking the news lying down. Instead, the company has done everything it can to appeal to a more global audience, from publishing and development deals to new acquisitions. Ars sat down with president and CEO Yoichi Wada at the Montreal International Game Summit to discuss the apparent turmoil in the Japanese game industry and what Square-Enix hopes to do about it.

"It is true that the Japanese gaming companies have started to fall behind some of the Western companies since 2005," Wada said via an interpreter. "Right now they're starting to get used to the current generation of consoles and they're on the road to recovery. So I believe the situation is not that pessimistic."

What does worry Wada, though, is the lack of young, up-and-coming developers coming out of Japan.

"What I'm most concerned about," he told Ars, "is that the game creator foundation is starting to become exhausted in a sense, because there aren't as many younger creators that are aspiring to become developers."

"It's tough to be able to pinpoint the reason why, but when we look at 10 years ago, all of the console manufacturers were based in Japan," he continued. "And actually those console manufacturers became the information hub that connected one creator to another. But now Nintendo is practically the only console manufacturer based in Japan...so the console manufacturer as a hub is now missing."

One of the ways Square-Enix is combating this lack of Japanese talent is by seeking help elsewhere, most notably by acquiring Tomb Raider developer Eidos, because "they had a very pure and strong love of making games." According to Wada, the main reason SE targeted Eidos specifically was a combination of pre-existing intellectual properties, technology, and a cultural diversity that was lacking in the Japanese company.

Surprisingly though, in spite of SE's aggressive North American expansion, Wada severely downplayed the company's mysterious Los Angeles studio. In fact, it might not even be a studio after all.

"There are a couple of Japanese developers that had been dispatched to the West for two years in order to be able to create a certain title, and this has not really been announced," he explained. "But this initiative has already started from last year. With regards to the LA office, there are a couple of developers that we had there, but whether those developers within the office are going to be developing and growing into a studio has yet to be determined."

But SE is not only trying to make games that appeal to Western audiences, it's also trying to make Western-developed games more appealing to Japanese gamers. Case in point: Modern Warfare 2 will be released in Japan this December, published by SE. And while first-person shooters haven't traditionally seen much success in Japan, this doesn't seem to worry Wada.

"The Japanese community tends to be closed," he told Ars. "In the past, Japanese retailers have said that Japanese gamers have their own idiosyncrasies and tastes, and that that is the reason why the audience is not accepting of overseas titles. But I believe that is not the case, it was just a matter of poorly executed marketing."

And with SE's extensive experience with the Japanese market, Wada believes they will be able to turn MW2 into a success.

Of course, there are some games the company doesn't have to worry about. Like Final Fantasy XIII. The series has been very successful worldwide, and the much-anticipated thirteenth installment will more than likely be no different. What is different, though, is the release window: FFXIII will hit Japan this December, and then Europe and North America just three months later, in March 2010."

"For the last three years, we have worked very hard to close the gap between Japanese release timing and North American and European release timing," Wada said. "We tried to go for the global, simultaneous release but that was something that was inconceivable, in a sense. But we have been able to close that release window gap to three months. For us, it was a very big step forward."

In the future, Wada says that these kinds of games, which are released so close to one another, will actually be held back in Japan to make way for a simultaneous worldwide release. However, FFXIII was an exception.